Exclusive Independent music association Impala has disclosed to The Register a little more detail about its complaint to the EU competition authorities on YouTube's new music contracts.
The trade group outlined five areas where it believes Google, which owns YouTube, breaches Article 102 of the Treaty on the Functioning of the European Union (TFEU). Small independent music labels and publishers claim they have been offered draconian new terms that dictate the price and distribution of their music for a new audio streaming service under the YouTube brand.
The major labels have already agreed to different terms. Google reportedly has threatened to block indies from its YouTube video service, the world's most popular distribution channel for music, if they refuse to sign.
Details of one of the proposed contracts can be read here.
The indies want the authorities to take emergency action to prevent the contracts being enforced, and to annul any that have been signed so far. Today, Impala said a formal complaint against Google is underway in Brussels.
"As well as issuing a red card and stopping YouTube's conduct, the European Commission could also issue a fine of up to 10 per cent of its turnover worldwide," the indie body reckons. "With advertising revenues alone reported to be $5.6 billion, YouTube could be facing a fine north of $500m."
YouTube is the "biggest single access point to music for consumers internationally, with one billion users worldwide”, Impala points out, citing trade body IFPI's 2014 report. Being blocked from YouTube would result in "catastrophic" consequences for labels, in terms of exposure and revenue. Artists who labels refuse to sign would no longer be able to manage their YouTube channels.
The complaint points out that Google's insistence on dictating the terms for the marketing and delivery of music. Signatories are forbidden from creating release window exclusives with, say Apple or Amazon or a publication. This is "unprecedented" in the industry, we're told.
The five areas where the group alleges Google breaches EU law are:
- tying distribution through the free service to distribution through the new premium service;
- leveraging a dominant position in video-streaming distribution into wholesale music-streaming distribution;
- imposing "unfair or disadvantageous" licensing conditions on the independents;
- terminating or threatening to terminate the supply of video-streaming distribution services to independent companies as well as potentially to UGC distribution and monetisation services in relation to the platform;
- and applying dissimilar conditions to equivalent transactions, which puts the independent companies at a competitive disadvantage vis-à-vis the majors.
The extraordinary terms in the proposed contract disclosed earlier this week require indies to promise that they would never sue an uploader of their work. In theory, then, Google could accept "user-generated" copies of a label's music, make money off the advertisements, and refuse to pay the label. "Safe harbour" provisions would apply whether the owner wanted Google to use its work or not.
Google's market dominance in organic search and paid search would also come into play. And the association points out that network effects mean a rival to YouTube would be very unlikely to get off the ground.
Competition expert Professor Kathryn McMahon at Warwick Business School told The Register that YouTube's dominance gave the indies a strong basis for a complaint.
"That's something Commission could look at - Google's leverage into other markets," she said. However, a full judicial investigation would take years and Google could contest many definitions - for example, that of "market", she added.
A YouTube spokesman told The Register: "Our goal is to continue making YouTube an amazing music experience, both as a global platform for fans and artists to connect, and as a revenue source for the music industry.
"We’re adding subscription-based features for music on YouTube with this in mind – to bring our music partners new revenue streams in addition to the hundreds of millions of dollars YouTube already generates for them each year. We are excited that hundreds of major and independent labels are already partnering with us." ®